Legislators, regulators and law enforcement authorities are increasing their efforts to detect and combat money laundering. Although this is not a new trend, recent developments in many jurisdictions demonstrate that Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT) enforcement remains a top priority. We explore recent regulatory reforms and enforcement action and provide suggestions on mitigating the risks in this area.
Global commitment to tackle money laundering
We continue to see the introduction of regulations requiring businesses to implement measures to prevent money laundering. In the UK, the Government is consulting on improving the effectiveness of money laundering regulations and strengthening system coordination across public and private sector auctors. The reforms follow the implementation of the Economic Crime and Corporate Transparency Act 2023 (ECCTA). The legislation has expanded the attribution of liability for the conduct of senior managers to cover Proceeds of Crime Act 2002 (POCA) offences, such as concealing criminal property, facilitating the acquisition of criminal property, the use and possession of criminal property and failing to disclose knowledge or suspicion of money laundering. As a result, it will be easier for enforcement authorities to attribute actions of senior managers to corporations for these POCA offences. In addition, the ECCTA extends AML requirements under the UK POCA to cover crypto-assets. This will allow the seizure of crypto-assets in a wider range of circumstances and extends enforcement powers to additional agencies, including the Financial Conduct Authority(FCA). The financial services sector continues to see the introduction of new regulations in this area with the FCA most recently conducting a review of the treatment of Politically Exposed Persons (PEP) in relation to money laundering.
Similar efforts are underway in the EU. The new AML legislative package to combat money laundering and terrorist financing more effectively consists of the following four pillars:
- The EU “single rulebook” regulation (AMLR), which contains directly applicable AML/CFT rules. The AMLR includes measures that require a wider range of entities to complete customer due diligence checks and identification of beneficial ownership.
- The 6th Anti-Money Laundering directive expands the scope of Member States’ obligations for implementing measures to combat money laundering and terrorist financing.
- Regulation establishing the European Anti-Money Laundering Authority (AMLA), which will pursue a harmonised application of AML rules throughout the EU. The AMLA has been described as a “game-changer in cracking down on dirty money in the EU”.[1]
- Amendments to the EU Transfer of Funds regulation, which includes revised rules on the information accompanying the transfers of funds and certain types of crypto-assets in order to make it possible to trace transactions.
In the EU banking sector, the European Banking Authority (EBA) is intervening to tackle money laundering linked to crypto-assets; the full traceability of funds to address high-risk financial entities is a central feature of these proposals. The aim is to track the flow of funds via a “Travel Rule”, which requires payment service providers (PSP) to ensure that the transactions are accompanied by specified details.[2] In addition, the EBA has extended its guidelines on money laundering and terrorist financing risk to crypto-asset service providers. Similar to the UK, the EU is reforming the law on tracing, identification, freezing and confiscation of crypto-assets by adopting a directive to facilitate improved tracking and enforcement powers in relation to crypto-assets. There has also been reform across the EU to provide greater transparency on beneficial ownership. For example, the General Administration of the Treasury of the Belgian FPS Finance has recently instigated the removal of 20,795 entities from the Crossroads Bank for Enterprises over failure to comply with the legal obligation to register or refresh information on their Ultimate Beneficial Owners (UBO) in the Belgian UBO register.
The US is also implementing AML regulatory reform. The Corporate Transparency Act requires corporations, limited liability companies and other legal entities to report information about beneficial ownership to Financial Crimes Enforcement Network (FinCEN). The US is mirroring the UK and EU by focusing on AML obligations in the financial services sector. FinCEN is proposing to widen the regulation of AML and CFT obligations to include certain types of investment advisors in a proposed new rule. FinCEN simultaneously released a 2024 Investment Adviser Risk Assessment, its first comprehensive effort to describe and measure “illicit finance threats involving investment advisers”. If adopted in its current form, the proposed rule would bring an end to the long running debate about whether investment advisers should be subject to the Bank Secrecy Act and the AML/CFT requirements that have long been applied to banks, broker-dealers, and other financial institutions.
Having strengthened AML and counter-terrorist financing laws in the last five years, the UAE and its key financial freezones are ramping up enforcement efforts. The Dubai Financial Services Authority (DFSA) in the Dubai International Financial Centre (DIFC) enacted an updated rulebook and guidelines to strengthen AML and Counter-Terrorism Financing (CTF) measures. These include the introduction of enhanced customer due diligence measures for high-risk clients, mandates for the implementation of advanced transactions monitoring systems capable of real-time analysis, new provisions for the handling and reporting of suspicious transaction reports, required AML training for employees, and fines for non-compliance with new AML regulations. Similarly, the Financial Services Regulatory Authority (FSRA) in the Abu Dhabi Global Market (ADGM) has updated its AML rulebook to provide greater clarity and guidance for financial institutions and other companies to better comply with AML protocol. For example, the ADGM FSRA clarified that the “Travel Rule” (details to be provided when funds are transferred) extends to virtual asset. In addition, the UAE Central Bank continues to issue comprehensive guidelines to licensed financial institutions (LFIs) and designated non-financial businesses and professions (DNFBPs) regarding transaction monitoring, sanctions screening and managing risks related to virtual assets. These regulations are a part of a broader effort to improve the regulatory framework and ensure robust compliance across all sectors.
Increase in enforcement action
There has been an increase in the total fines flowing from global enforcement action against companies for involvement in money laundering The regulated sector has seen a significant proportion of these fines, with banks and other financial institutions fined nearly $5 billion for AML and other financial crime breaches in 2022, representing a 50% increase on 2021.
AML enforcement action continues to be active in US, which has seen some of the highest penalties. The Department of Justice (DOJ) is currently probing one of Canada’s leading banks for money laundering shortcomings. The investigation follows the DOJ securing a guilty plea from a bank and agreement to forfeit $2 billion to resolve an investigation into “deficient anti-money laundering controls”, and the US Federal Reserve fining a leading EU bank for money laundering failings. The US DOJ has also secured prosecutions of high-profile business executives for money laundering, such as the conviction of former CEO of Binance, Changpeng Zhao, following coordinated resolutions with Binance to pay $4.3 billion.
EU AML enforcement has seen the German financial watchdog, BaFin, fine, among others, AG bank for money laundering failings, and we expect to see enforcement action by the newly introduced EU AMLA in the forthcoming years.
In the UK, the Gambling Commission agreed a significant settlement with a leading online betting company for regulatory failures related to AML and social responsibility. Other UK regulators are active in holding businesses to account for breaching AML rules. HM Revenue & Customs has issued £3.2 million in money laundering penalties and the FCA has fined ADM Investor Services and a leading retail bank for AML failures. The FCA has warned other retail banks in a recent Dear CEO letter that it will consider regulatory action where firms fail to address money laundering system and controls gaps and weaknesses.
Recent enforcement efforts in the UAE were recognised in April 2024 when the region was removed from the Financial Action Task Force (FATF) grey list of jurisdictions. This landmark underscores the country’s progress in implementing effective measures and proactive regulatory actions to combat financial crimes. For example, the UAE’s FSRA has issued a financial penalty of a US$3 million to a multinational asset management company for having ineffective AML controls.
Risk mitigation
Given the importance of AML to compliance, companies need to stay abreast of continued waves of changes. The differences in approach to AML globally creates layers of complexity for organisations. Nonetheless, many of the principles underpinning regulatory reform and enforcement action are consistent. Businesses should identify common approaches, as well as appreciate the finer details of developments, to facilitate systematic measures across borders. Ongoing risk assessments overseen by senior managers can be utilised to identify gaps and weaknesses to allow steps to remedy identified issues. A rapidly evolving tool to combat risk in this area is AI and technology to manage AML compliance and due diligence. Several regulators have supported the use of technology as a core part of their expectations for how global businesses address money laundering, particularly as criminals leverage technology to launder money and evade sanctions. It is likely that this will be an increasingly critical feature of the toolkit large organisations should use to ensure robust controls are in place.
[1] New EU rules to combat money-laundering adopted | European Parliament
[2] Fund transfers, crypto-assets and AML/CTF - the European Banking Authority's take on the ‘Travel Rule’ | Freshfields Bruckhaus Deringer
